Indian banks expected to report stable net interest margins in Q3 FY26, with rising profitability driven by lower credit costs and higher fee income.

According to a research released on Monday, Indian banks are anticipated to post net interest margins that are largely unchanged in the third quarter of FY26, but total profitability is anticipated to increase year over year.

According to the Systematix Institutional Equities research, decreased credit costs, higher fee income, and continuous sequential advance growth will all contribute to improved profitability.

Because of reduced interest rates, the benefits of a lower GST rate, and higher tax limits, the brokerage predicted that the upward momentum in advances would continue.

Additionally, it forecasted that net interest margins would decline in Q4 but then rise as the cost of deposits is anticipated to decline due to the reopening of the current book and the normalization of slippages in the unsecured segment, which will cut credit costs.

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Even while the yield on advances (YOA) is still declining, it is anticipated that the benefits of earlier term deposit (TD) rate decreases would start to show this quarter. Additionally, the benefits of lowering the Cash Reserve Ratio (CRR) should support stable margins, it stated.

According to RBI data, as of December 12, 2025, banking system advances increased 4.5% on a quarterly basis and 11.7% on an annual basis.

According to the research, trading gains may decrease if benchmark 10-year “G-Sec yields” improve, while fee income is anticipated to increase as advance growth improves.

To preserve their profits, the majority of banks lowered rates on term deposits and savings accounts earlier in the cycle. Although the cost of funds was immediately impacted by the savings account rate decreases, the report stated that starting this quarter, the advantages of the term deposit rate drop brought about by the lagged repricing of existing fixed-rate deposits should become more apparent.

The firm added that Q3 will probably be marked by stable recovery trends, which will help mitigate the impact of credit costs. Another recent research stated that asset quality is predicted to be constant for most banks, with the exception of minor rise in seasonal agro slippages.

The banking pack’s ongoing strength propelled the Bank Nifty to a new all-time high of 60,152.35 on January 2.